9/24/2009 @ 1:20AM

Australia Blocks Chinese Mining Deal

For the second time this year, Australia has blocked a Chinese mining investment on national security grounds.

The Defense Department in Canberra warned Thursday that Chinese companies are not allowed inside the sensitive security grounds within a weapons-testing range at the Woomera Prohibited Area in South Australia.

Australia’s military once again flexed its muscles to Chinese investors and said that the Hawks Nest Project signedbetween China’s Wugang Australia Resources and Australia’s Western Plains Resources, would “not be compatible with defense’s activities at the Woomera Prohibited Area on safety, operational and national security grounds.”

Hawks Nest is some 180 kilometres from the Woomera range head near the Woomera township and more than 800 kilometres from the Pine Gap communications station west of Alice Springs. The Sydney-listed Western Plains Resources purchased the project in 2006 and has carried out exploration programs there for the last three years in accordance with the requirements of South Australian mining legislation and exploration access agreements with the Department of Defense.

To obtain more capital for developing the Hawks Nest project, the mining rookie signed a deal in June with Wugang Australia Resources, a wholly-owned subsidiary of China’s state-owned Wuhan Iron and Steel. Under the agreement, Wugang would subscribe for some 12.1 million shares of West Plain Resources for 45 million Australian dollars ($39 million) which would be used to undertake a feasibility study to develop some magnetite deposits in Hawks Nest. The Chinese investors would also get a 50% participating interest in the project, which is within the Woomera testing range.

Australia’s Defense Department had been in negotiations with Western Plains since 2007. Defense Minister John Faulkner said the decision by his department was not based on the investor’s origin in China, but on concerns over the most sensitive and dangerous part of the Woomera area.

“The difficulty here in relation to this proposal is its location,” Faulkner told state radio.

West Plain Resources announced Wednesday that it had received a letter from the Department of Defense last Friday. In the letter, military officials stated that the Defense Department will not support West Plain Resources’ application to the Foreign Investment Review Board for approval of the Chinese investment in the Hawks Nest Project.

The Australian miner defended the project and argued that the Hawks Nest tenement straddles the Stuart Highway, the main road from Adelaide and other southern cities, to Darwin. Because of its physical proximity to the highway, West Plain said it “does not believe that Defense would deliberately schedule weapons trials in the Hawks Nest area because of the possibility of such tests causing harm or inconvenience to persons legitimately using the highway.”

This is the second time this year that the Australian authorities have blocked Chinese mining companies from expanding into the Woomera Prohibited Area, which covers territory about the size of England.

In late March, Australian Treasurer Wayne Swan barred China’s state-owned metals group, Minmetals, from buying OZ Minerals, making it clear that he would not approve the deal if it included the Prominent Hill copper-gold mine which is located within the sensitive government weapons-testing site.

Swan’s warning triggered a revamped deal which helped the ailing OZ Minerals retain its most important copper-gold mine in Prominent Hill and also allowed it to pocket $1.2 billion by selling non-core exploration and development assets, including the world’s second-biggest zinc mine, to China Minmetals.